In this section we examine the merger’s potential effects on the video services provided by multichannel video programming distributors (“MVPDs”).622 MVPDs include cable operators, direct broadcast satellite providers (“DBS”), multichannel multipoint distribution services (“MMDS”), and satellite master antenna television (“SMATV”) providers.623 In AT&T-TCI, we concluded that the relevant geographic market for MVPD service is local.624 One or more MVPD providers furnish MVPD services in local franchise areas. Only one cable operator serves most franchise areas. In a limited number of franchise areas, a second cable operator (an “overbuilder”) or MMDS operator also offers service. SMATV providers generally offer service in any setting in which a public right-of-way is not crossed, but do not provide competition throughout a local franchise area. DBS providers also distribute MVPD services and are available nationwide to consumers with an unobstructed southern view.
Time Warner is the dominant provider of multichannel video programming services in those local markets in which it operates franchised cable systems. America Online does not directly operate any company providing MVPD service, but does have an ownership interest in DBS operator DirecTV’s corporate parent, Hughes.
We examine below specific allegations of harm to MVPDs arising from the combination of Time Warner’s cable systems with AOL’s ownership interest in DirecTV, as well as concerns about MVPDs’ access to Time Warner video programming post-merger.625 We conclude that the merger will not present any public interest harms affecting MVPD services.
As discussed in Section IV.C.3 above, AOL paid GM $1.5 billion for 2,669,663 shares of non-voting GM Preference Stock that tracks the performance of Hughes, GM’s wholly owned subsidiary.626 If AOL converted its GM Preference stock into GM voting equity, AOL would hold approximately 1.76% of GM’s voting equity.627 GM’s wholly owned subsidiary DirecTV, the nation’s largest DBS provider, served 8.3 million MVPD customers nationwide as of March, 2000.628 Commenters argue that the merged firm’s ownership interests in both DirecTV and Time Warner will enable the merged firm to harm competition between DBS and cable MVPDs.629 Consumers Union asserts that the merged firm will harm the ability of DirecTV to compete with cable.630 Although the Commission does not have a rule barring cross-ownership of both a DBS and cable MVPD, RCN argues that the Commission has the discretion to address any competitive harms caused by such cross-ownership on a case by case basis.631 Consumers Union and ACA request that the Commission order AOL to divest its interest in GM, DirecTV’s parent, as a condition of the merger.632
With respect to the merged firm’s ownership interest in GM, we find that the proposed merger will not violate the Communications Act or any Commission rules, nor will it frustrate the implementation of the Communications Act or its goals. We conclude that the merger will not result in public interest harms regarding competition between DBS and cable.
Although legislation introduced in the Senate proposed a cable/DBS cross-ownership ban in the 1992 Cable Act, the House and Senate Conference decided that it was premature to adopt such a ban at that time.633 The conferees stated that they expected “the Commission to exercise its existing authority to adopt such limitations should it be determined that such limitations would serve the public interest.”634 The Commission subsequently decided that “its authority to approve transfers of control of licenses would enable it to address any competitive concerns raised by subsequent proposals by cable affiliated entities to acquire DBS spectrum.”635 In 1998, the Commission initiated a rulemaking seeking comment whether the Commission should adopt DBS ownership rules, including DBS cross-ownership rules with cable operators.636 This rulemaking is still pending. In the meantime, we examine “specific competition and public interest concerns related to DBS ownership on a case-by-case basis.”637
In this case, we find that the merged entity’s indirect interest in DirecTV does not rise to the level of ownership that ordinarily triggers scrutiny by the Commission. Therefore, we need not examine whether the common ownership of both a DBS and a cable MVPD provider raises public interest concerns. We agree with the Applicants that AOL does not have an interest in DirecTV’s parent, GM, that confers on AOL the ability to influence or control DirecTV such that AOL should be deemed the “owner” of DirecTV for the purposes of a DBS/cable competitive analysis.638As noted above, the Commission does not have ownership or attribution rules that apply to satellite spectrum ownership. Under our various other ownership rules, the Commission has generally found that a voting equity interest of 5% or more is required to confer influence or control on the interest holder in order to deem the interest holder an “owner” for purposes of the applicable rule.639 As discussed above, AOL holds nonvoting equity in DirecTV’s parent that, if converted, would constitute less than 2% of the voting equity of GM. Thus, we would not treat AOL as an owner for purposes of our other ownership rules, and the commenters have made no credible arguments why AOL’s less than 2% voting equity interest should be treated differently under these circumstances. Because the record does not demonstrate that AOL has the ability to influence or control DirecTV, we need not examine further whether this merger poses potential harms to competition between DBS and cable.
Nevertheless, if the merged firm increases its ownership interest in Hughes and/or GM, we reserve discretion to decide whether the increased ownership interest poses a threat to DBS/cable competition. Accordingly, as a condition of this merger, we will require the Applicants to notify the Commission in writing of any transactions that increase the Applicants ownership interest in Hughes and/or GM, within 30 days of the transaction.640
2.Program Access Issues
Commenters allege that the merger would harm unaffiliated MVPDs, and assert that the Commission should remedy this potential harm by expanding the scope and application of its program access rules to cover terrestrially delivered video programming and contracts between cable operators and unaffiliated programmers.641 These rules are designed to prevent vertically integrated programming suppliers from favoring affiliated cable operators over unaffiliated MVPDs in the sale of satellite-delivered programming. The record does not support a finding that the merger would enable or increase the likelihood of harm to competing MVPDs with respect to the sale of video programming. Accordingly, we find it unnecessary to impose remedial conditions.
The program access rules apply to cable operators and programming vendors affiliated with cable operators that deliver video programming via satellite to a cable operator.642 The Commission adopted these rules pursuant to Section 628 of the Communications Act,643 through which Congress sought to minimize the incentive and ability of vertically integrated programming suppliers to favor affiliated cable operators over nonaffiliated cable operators or other MVPDs in the sale of satellite cable and satellite broadcast programming.644 Among other restrictions, the rules prohibit any cable operator that has an attributable interest645 in a satellite cable programming vendor from improperly influencing the decisions of the vendor with respect to the sale or delivery, including prices, terms, and conditions of sale or delivery, of satellite cable programming or satellite broadcast programming to any unaffiliated MVPD.646 The rules also prohibit vertically integrated satellite programming distributors from discriminating in the prices or terms and conditions of sale of satellite-delivered programming to cable operators and other MVPDs.647 Additionally, cable operators generally are prohibited from entering into exclusive distribution arrangements with affiliated programming vendors.648
RCN contends that Time Warner has “migrated” affiliated programming from satellite to terrestrial delivery so that it will not be required to give competing MVPDs access to this programming. RCN argues that AOL Time Warner’s ability to shield terrestrially delivered affiliated programming, such as local news or sports programming, from the program access rules will substantially impair its ability, and that of other MVPDs, to compete.649 SBC echoes these sentiments in its comments.650 RCN also expresses concern about the Applicants’ potential power as a purchaser of video programming, and further suggests that the combined entity’s forays into interactive TV, and its ownership stake in DirecTV’s parent Hughes, would exacerbate its market power, allowing it to exercise substantial power in the programming marketplace.651 RCN contends that this power, in turn, might lead unaffiliated programmers to discriminate against RCN and other overbuilders by offering the Applicants exclusive contracts or preferential treatment.
To remedy these alleged problems, RCN first proposes a merger condition that would require the Applicants to provide programming to other MVPD competitors “without reference to its mode of delivery.”652Similarly, SBC asks that the Commission condition the merger on AOL Time Warner’s agreement to comply with the program access rules, “regardless of the technology used to distribute its content at the wholesale level.”653 Second, RCN requests that we require AOL Time Warner to comply with the program access rules “without the requirement of vertical integration.”654 Such a condition would prevent the Applicants from entering into exclusive arrangements with unaffiliated programmers. Digital Access, another cable overbuilder, seeks the same condition, based on its inability to obtain sports programming from the Midwest Sports Channel, which has an exclusive contract with Time Warner Cable in the Milwaukee, Wisconsin market.655 AOL and Time Warner oppose these conditions, arguing both that the proposed conditions are inconsistent with existing statutory language, and that they are unrelated to the merger.656
There is no record evidence suggesting that the merger would either create or enhance the ability or incentive of AOL Time Warner to prevent competing MVPDs from gaining access to Time Warner’s video programming through the migration of such programming from satellite to terrestrial delivery.657 Thus we cannot conclude that competing MVPDs will suffer any harm in this context. Accordingly, we decline these commenters’ invitation to apply the program access rules or equivalent restrictions to terrestrially delivered programming distributed by the merged company.658 We also reject RCN’s proposal that we apply our program access rules to AOL Time Warner’s dealings with unaffiliated programmers. Again, there is no evidence suggesting that the merged firm’s incentive or ability to enter into exclusive contracts with unaffiliated video programmers would be greater than Time Warner’s current ability to do so. While we are cognizant of the harm that exclusive contracts can cause overbuilders in local markets, we cannot conclude that the merger will harm competing MVPDs seeking to purchase non-Time Warner video programming.
